Posts Tagged ‘Onewest Bank v. Erickson’

We live in an increasingly mobile world. That assertion is hardly controversial. The reality that America’s patchwork of over fifty separate legal jurisdictions can make for confusion and conflict is well understood by lawyers and observers. A recent guardianship and conservatorship case involving two states (neither of them Arizona) illustrates how that confusion can play out.

Ben Marvel (not his real name) bought a house in Spokane, Washington, in 2001. He let his daughter Melinda live there with her kids, and he stayed in the home from time to time — he also lived part time in Idaho. In about 2007, he moved in with his daughter and her family full-time.

At about that time, Melinda sued Ben for allegedly concealing her late mother’s will and failing to transfer her assets as directed by that will. As a result of that litigation, Ben agreed to transfer the Spokane house to Melinda; he signed a quit claim deed to her in mid-2007, and the lawsuit was dismissed a few months later. Melinda did not immediately record the quit claim deed.

Meanwhile, Ben’s son initiated a conservatorship proceeding in Idaho, and the Idaho court determined that Ben was an Idaho resident, that he lacked capacity to make his own financial decisions, and that a professional fiduciary should be appointed. Because Ben’s assets were limited, the Idaho conservator was directed to “facilitate” a reverse mortgage on his home in Spokane.

The reverse mortgage was signed in October, 2007, and the conservator received funds that helped pay for Ben’s care. Meanwhile, a few months later, the Washington court (where Melinda’s lawsuit had been dismissed) signed a new order and judgment confirming that Melinda owned the Spokane property; that judgment indicated that it would be nunc pro tunc — that is, that it would be effective as of the original date on which the lawsuit had been dismissed.

Ben died in 2011, and the reverse mortgage became due. The bank granting the reverse mortgage ultimately initiated foreclosure proceedings, and Melinda objected that the house was hers, that Ben did not own any interest in it, and that the Idaho courts had no jurisdiction to authorize a reverse mortgage over Washington property anyway.

To clarify this confusing story, this timeline might be helpful (we’ve added a sprinkling of dates not included in the above narrative):

2001: Ben purchases Spokane house

Early 2007: Ben moves into Spokane house with Melinda’s family; Melinda sues Ben

December 8, 2011: Melinda finally records the quit claim deed signed by Ben in 2007

2012: bank initiates foreclosure on reverse mortgage

There are several legal questions posed by this confused history. Can any individual secure a reverse mortgage (or a conventional mortgage, for that matter) on property that they no longer own? Can the failure to record a deed, coupled with the failure to get the court to enter a judgment, permit someone who doesn’t really own property to encumber it? Is there some explanation for everyone’s actions in this scenario? All are interesting questions. But the legal issue that catches our eye is this: can an Idaho conservatorship court make any findings affecting real estate in Washington?

In general terms, real estate is subject to the jurisdiction of the courts where the property sits, and not other courts. In Ben’s case, however, the bank argued that his Idaho conservator had the authority to handle all of his property and finances — regardless of where they might be located. Melinda, on the other hand, challenged the very power of the Idaho court to approve, direct, or even facilitate a reverse mortgage on out-of-state property.

The trial court in Washington decided that the reverse mortgage was valid, and that the bank could foreclose on the loan. The Washington Court of Appeals reversed, finding that “the Idaho court lacked authority to authorize a conservator to encumber the Spokane residence.”

The case went on up to the Washington Supreme Court, which agreed with the trial judge. The Idaho conservatorship proceedings, it decided, were entitled to “full faith and credit” under the U.S. Constitution, and the Idaho courts had considered and decided the question about whether Ben resided in Idaho or Washington at the time its proceedings were initiated.

The Washington high court also decided that, while the Idaho courts would not have had authority to change ownership of the real property in Washington, they could enter orders that indirectly affected ownership of that property. As an analogy, the justices noted that an Idaho court could enter an order in a divorce proceeding that directed one spouse to sign a deed to Washington property; the court’s power over the individual would permit it to affect the real estate in another state.

Once the state’s high court decided that the Idaho conservatorship orders were valid and enforceable, the problem became whether to find the mortgage itself to be valid. Since the deed conveying the property to her had not been recorded, the bank had no reason to ask her if she claimed some interest in the property. The bank’s reliance on the record ownership and the authority of the Idaho conservator was sufficient to find the mortgage to be valid. Onewest Bank, FSB v. Erickson, February 4, 2016.